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					OVERVIEW OF THE GREENHOUSE
  (GH) VEGETABLE INDUSTRY:
       Focus on Tomatoes
                   by
             Roberta Cook
     Department of Agricultural and
         Resource Economics
     University of California, Davis
          September 11, 2006
                   for
   The IR-4 Project Greenhouse Grown Food
       Crops Workshop On Pest Control
Estimated Global Covered Horticultural Area, 2004, 1000 Hectares
                                                    Plastic GH
                                                    and Large    Small Plastic  Plastic
       Region                       Glass            Tunnels       Tunnels     Mulching

   Asia                                2.476         926.0          665.0     10,000.0

   Europe                            28.922            171.5         92.0         400.0
   Africa/Middle                       6.682            50.6        112.0          80.0
   East
   N. America                          1.350            11.05        20.0         260.0
   Central/S.                         N.A.               9.51        11.0           6.0
   America
   World Total                      39.430          1,168.66        900.0     10,500.0
   Source: Rabobank 2006, The World of Vegetables
US Ag Census Results
   2002 greenhouse veg area 579 hectares (+
    >50 since) vs. 370 in 1997 Ag Census

   But this is: under glass or other protection
    so may include some shade house

   While precise statistics don’t exist, we know
    that greenhouse area and production are
    increasing, with tomatoes the vast majority
    of area
                Overview
 Europe developed the US GH market
 Within N. America Canada started
  production first, followed by the US
 It is increasingly a N. American industry
 Market has been saturating at retail for
  tomatoes
 Foodservice market not yet developed
  for GH and foodservice is the high
  growth rate market – savior of the field
  tomato industry
               Overview
 Mexico is a latecomer in GH, it’s
  advantage is the ability to produce for
  the high-priced winter market
 Rapidly expanding winter production is
  bringing prices down
 GH prices still very dependent on field
  volume and weather shocks
 Greenhouse production is still seasonal
  and weather impacted after all, despite
  being grown indoors
                          Overview
   Hard to deliver volume and quality for newcomers, learning
    curve!
   Canada and the US already went through the learning
    process, with many failures in the US, and a shift to the
    right locations in the west and southwest
   Disease pressure if open field ag is nearby
   Market windows are mainly gone; need to extend the
    shipping season to recover high fixed and variable costs of
    greenhouse production – boosting supply and creating
    price pressure
   Consolidated buyers look for big marketers capable of
    offering year-round production and contracts – alliances
    are happening, not yet proven
   Retail demand for GH tomatoes is beginning to saturate
    after explosive growth in the 90s, whereas growth in GH
    cukes and peppers is on the upswing
      Estimated trends in N. American
     greenhouse tomato area,1 hectares
2,000
1,800                                              Mexico*
1,600
1,400                                              Canada
1,200                                              US**
1,000
  800
  600
  400                                             *Excludes most
  200                                             shade house
    0                                             **Major
                                                  producers only
        94

        95

        96

        97

        98

        99

        00

        01

        02

        03

        04
                                                  until 1998
     19

     19

     19

     19

     19

     19

     20

     20

     20

     20

     20
 1Preliminary estimate for Mexico in 2004
 Sources: ITC, AMPHI, Stat Canada, and Calvin and Cook
    US Average Annual FOB Greenhouse Tomato
        Prices, 1990-2005, Dollars per Pound

          $1.00                                                                                                                   *

                                                                                          Hurricane effect causing a
          $0.90                                                                           reduction in field supply,
                                                                                          benefiting GH growers.


          $0.80



          $0.70
                  1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005
                                                                                                                            Est



Sources: Greenhouse shippers’ internal records
    The U.S. fresh tomato market,
 U.S. GH production included as of 1998*
       Million Metric Tons
            3
         2.5    Fresh Consumption
            2                      Production for Fresh Use

         1.5
            1      Fresh Imports
         0.5                      Fresh Exports
            0
             90
             91
             92
             93
             94
             95
             96
             97
             98
             99
             00
             01
             02
             03
             04
             05
          19
          19
          19
          19
          19
          19
          19
          19
          19
          19
          20
          20
          20
          20
          20
          20
*Excludes domestic production of grape and cherry tomatoes. Imported grape, cherry and GH tomatoes included for all years.
Sources: Compiled by Cook and Calvin from USDA and DOC sources and Cook and Calvin’s U.S. greenhouse tomato
production estimates through 2003, updated for 2004 and 2005 by Cook in June 2006.
 National Fresh Tomato Retail Shares of
Quantity and Value by Tomato Type, 2005
                vs. 1999
Type              Share of $Value Share of Pounds
                   2005          1999              2005             1999
Greenhouse          43%              42%              41%            31%

Round field         21               36               23             43

Roma (field)        13               16               19             23

Cherry/grape         23                6              17                3
(field)        Sources: CTC, IRI, and The Perishables Group
               *May not sum to 100 due to rounding and retailer assigned codes.
      North American Fresh Tomato Industry,
  Greenhouse1 and Field, 2004, Excludes Processing
    revised
                                  USA            CANADA MEXICO                           TOTAL
     GH Prodn                   167.896 216.862 179.000 563.758
     1,000 Mt
     Field Prodn                1,739.3 26.8822 1,967.8                                       3,734.0
     1,000 Mt
     GH Share of                    9%                   89%                  8%               13%
     Prodn

     Average Yield                  480                   487                 170              3793
     MT/HA
                                        1   US GH is estimated, Mexican GH is a preliminary estimate
Source: Roberta Cook and Linda Calvin   2   2003; 3Simple average, 306 if weighted average.
   North American Fresh Tomato Field (F) and Greenhouse (GH)
  Industry, 2004, Harvested Area, in Hectares, and Production, in
     Metric Tons (US and Mexican GH figures are preliminary
                            estimates)
 Area             Production                               Imports                      Exports
                                USA
 53,050F               1,739,340F   931,771                                               166,695
 Plus 350 GHE Plus 167,896 GHE
                              Mexico
67,240F E 1,967,800FE                28,000                                                 825,641
Plus 1050 GH     Plus 179,000 GH
Excludes shade house
                              Canada
445 GH             216,862 GH        174,183                                               134,454
Plus 1813 Field      Plus 26,882 Field
EEstimated   Note: Canadian fresh field tomato data are for 2003. Mexican GH estimates are very preliminary.
             Sources: Roberta Cook and Linda Calvin compiled from USDA; US DOC; AMPHI; Stat Canada, industry sources
       Canadian Greenhouse Tomato Yields
    Metric Tons Per Hectare, 1994-2004 (Canada also
                             underwent a learning curve)

 Metric Tons            Vs. estimated 484 Mt/Ha ave yield in US;
                        170 Mt/Ha in Mexico (75 to 580 yield range)
 600
                                                       473   491     494   487
                                                 465
 500                                 400
                                           450

 400                           324
                       298
 300     244     248

 200
 100
   0
       94

             95

                   96

                         97

                                 98

                                       99

                                             00

                                                   01

                                                           02

                                                                 03

                                                                       04
    19

            19

                  19

                        19

                               19

                                      19

                                            20

                                                  20

                                                        20

                                                                20

                                                                      20
Sources: Compiled by Cook and Calvin from Stat Canada and industry sources for
BC, Ontario, US and Mexico
 North American fresh tomato shipping seasons (dark
 bars) by region - greenhouse versus field grown

                                   J F M A M J J A S O N D
 Field California
 Grown Florida
           Rest of U.S.
           Sinaloa, Mex.
           Baja Calif., Mex.
           Canada

Green- Canada
house  U.S.*
           Sinaloa, Mex.
           Imuris, Sonora, Mex.
           Central Mexico
           Baja Calif., Mex.*
•Many U.S. and Baja greenhouse industry locations don’t produce year-round, but there is
•year-round production in the aggregate.
                           Marked Seasonal Pricing Patterns
 Weekly Greenhouse Tomato Prices: Week 16, 2005 (April 18) –
Week 15, 2006 (April 10), Includes Domestic and Imports, Excludes
                              Seconds*
          1.8
          1.6
          1.4
          1.2
$/pound




                                                                                                  TOV
           1
                                                                                                  Beef - Xlarge
          0.8
                                                                                                  Beef - large
          0.6
          0.4
          0.2
           0
                                                                            3
                                                                                6
                                                                                    9
           16
                19
                     22
                          25
                               28
                                    31
                                         34
                                              37
                                                   40
                                                        43
                                                             46
                                                                  49
                                                                       52




                                                                                        12
                                                                                             15
Sources: Greenhouse shippers internal records
US Cucumber and Bell Pepper Farm Value and Imports
                      2005
              Area Harvested, Production, Farm Value   Import Value
                    HA           MT         million      million

Bell pepper      65,370     658,110     $482.960 $450.777

Cucumber        23,140      464,110     $234,516 $319.164

Bell pepper GH import share,                      37%
Canada and Holland

Cucumber GH import share,                         20%
Canada and Holland
The U.S. fresh bell pepper market
       Million Pounds
         2,500
                                                             Consumption
         2,000
                                                                                         Production
         1,500
         1,000
                                                            Imports
             500
                                                                                     Exports
                  0




                  F
                 90
                 91
              19 2
              19 3
              19 4
                 95
                 96
                 97
              19 8
              20 9
                 00
                 01
                 02
              20 3
              20 4
             20 05
                 9
                 9
                 9




                 9
                 9




                 0
                 0

               06
              19
              19
              19




              19
              19
              19



              20
              20
              20
*Excludes domestic production of greenhouse bell peppers but imported greenhouse peppers are included.
Source: USDA/ERS, Vegetable and Specialties Situation and Outlook Yearbook, July 2006
            2002 US Retail Bell Pepper Category – and Rapid
                          Change Since Then
                                                                        US Pepper Category Share


                                                                                      86.8%

                                                   100.0%
                                                                                              11.6%
                                                                                                           1.6%
                                                    50.0%


                                                     0.0%
                                                                Field         Greenhouse       Specialty



                                   Pepper Category 1-Year Com parison


                                                                               202%

                      300.0%
                                           -4.5%            -4.8%
                      200.0%
                      100.0%
                            0.0%
                    -100.0%
                                   Field           Greenhouse           Specialty


Source: Perishables Group
USA Pepper Retail Sales
                                          Peppers - USA Retail Sales
                                      52Wk Trailing Quarterly Market Share
    100%
           82.6%                   86.6%
    90%                                                            81.3%
                                                                                                              Field - Bell
    80%                                                                                                       Peppers
                                                                                                   65.6%
    70%
    60%
%




    50%                                                                                                       GH - Bell
                                                                                                   32.6%      Peppers
    40%
    30%
           15.9%                                                   17.0%
    20%                            12.5%
                                                                                                   1.6%       Specialty
    10%    1.5%                                                    1.6%
                                   0.8%
     0%
           Q3-03   Q4-03   Q1-04   Q2-04   Q3-04   Q4-04   Q1-05   Q2-05   Q3-05   Q4-05   Q1-06   Q2-06
                                                     Quarter                          Prepared by the BCVMC, Sept - 06


   Greenhouse Bell Peppers has grown to 33% market share for 2006Y/E
    June-06.
                                                                   Source: The Perishables Group, as provided by BCHH
  The U.S. fresh cucumber market
        Million Pounds
         2,000
                                 Consumption
         1,500
                                                                                        Production
         1,000                                              Imports
             500
                                                                                   Exports
                  0




                  F
                 90
                 91
                 92
                 93
              19 4
              19 5
                 96
                 97
              19 8
              20 9
              20 0
                 01
                 02
              20 3
              20 4
             20 05
                 9
                 9



                 9
                 9
                 0



                 0
                 0

               06
              19
              19
              19
              19
              19



              19
              19




              20
              20
*Excludes domestic production of greenhouse cucumbers but imported greenhouse cucumbers are included.
Source: USDA/ERS, Vegetable and Specialties Situation and Outlook Yearbook, July 2006
2002 US Retail Cucumber Category – and Still Growing
                    Since Then


      Cucumber Category Share 2002-2003                      Cucumber Category 1-Year Change

                        92.7%                                                           19.8%

                                                    20.0%
100.0%
                                                              4.3%
                                 6.1%        0.1%   10.0%
 50.0%
                                                     0.0%
                                                                                                -5.6%
   0.0%                                             -10.0%
            Field   Greenhouse   Specialty                   Specialty   Greenhouse   Field




Source: Perishables Group
USA Cucumber Retail Sales
                                                  Cucumbers - USA Retail Sales
                                                     Quarterly Market Share
        100.0%                             90.9%
                  91.7%                                                    86.0%                           86.7%
        90.0%
                                                                                                                       Field
        80.0%                                                                                                          Green
        70.0%
        60.0%
                                                                                                                       Long
    %




        50.0%
                                                                                                                       English
        40.0%
        30.0%
                                                                           13.9%
        20.0%                                                                                              12.5%       Mini
                  7.8%                     8.2%
        10.0%                                                                                                          Cucs
                    0.2%                      0.2%                         0.1%                            0.3%
         0.0%
                 Q3-03     Q4-03   Q1-04   Q2-04   Q3-04   Q4-04   Q1-05   Q2-05   Q3-05   Q4-05   Q1-06   Q2-06
                                                             Quarter
    Data Source: Perishables Group                                                             Prepared by the BCVMC Sept-06


     For Y/E Q2-06, market share for L.E. Cukes fell to 12.5%. This represents a
      1.4% decrease compared to Y/E Q2-05
     Part of this decrease in L.E. market share is due to an increase in the market
      share of Mini Cukes and the Other Category that includes other specialty
      products and retailer assigned volume             Source: The Perishables Group, as provided by BCHH
U.S. Per Capita Consumption of Selected Fresh
           Vegetables, 1985-2006f
Pounds per capita
  25
  20
  15
  10
   5
   0




                                                                                                                                                          2006f
       1985
              1986
                     1987
                            1988
                                   1989
                                          1990
                                                 1991
                                                        1992
                                                               1993
                                                                      1994
                                                                             1995
                                                                                    1996
                                                                                           1997
                                                                                                  1998
                                                                                                         1999
                                                                                                                2000
                                                                                                                       2001
                                                                                                                              2002
                                                                                                                                     2003
                                                                                                                                            2004
                                                                                                                                                   2005
                     Carrots                                          Bell Peppers                                Tomatoes
                     Cucumber                                         Spinach

  Source: USDA/ERS, July 2006 Vegetable Yearbook                                                                   f=forecast
      Canadian Per Capita Consumption of Bell
        Peppers and Cucumbers, 1996-2004
Pounds per capita
 10
 8
 6
 4
 2
 0
       1996   1997   1998   1999   2000      2001   2002   2003   2004

                       Bell Peppers          Cucumber

 Source: BC Vegetable Marketing Commission
Mexican Protected Culture Industry
   Multiple types of greenhouse producers in Mexico,
    dual field and GH growers vs. dedicated GH
    growers – these sectors are different!

   There are multiple technology levels, lower to medium-tech options
    make sense in coastal areas for dual producers (shade house and
    passive greenhouses since heat limits the shipping season and hence
    the ROI on high tech GH’s)
   Remember that even lower tech protected culture is much higher tech,
    higher yielding – and higher cost – than open field production
   Export field/dual tomato growers in Mexico are in a different category
    than dedicated GH growers since they will continue to export tomatoes
    whether grown in the open field or protected – this makes the
    economics of their operations different than for dedicated high tech GH
    operators
Mexican Protected Culture Industry
   Mexican field exporters (Sinaloa and Baja) are converting
    more area to protected culture to achieve multiple benefits
    (higher yields, packout rates and quality; better disease
    control; lower labor use per kg produced; lower food safety
    risk; more/better volume/quality when weather impacts field
    production and prices rise, etc.)
   Some field growers with greenhouses are moving part of
    their operations to the right locations for greenhouses – vs.
    where they have always produced
   In Mexico firms are still searching for the right
    locations for high tech GH’s, there are established
    successful firms but also many failures
    Mexican Protected Culture Industry
   European and Israeli equipment suppliers pushing
    the industry in Mexico, with subsidies from their
    govts. – much of the growth is not market-driven
   Energy costs an issue for high tech growers since
    natural gas supplies often unavailable
   US commercial buyer perception is that Mexican
    greenhouse produce should cost less and the
    quality is less consistent and sometimes inferior,
    so in general, Mexican greenhouse growers
    receive lower prices
   The GH market is a quality market, emerging
    Mexican producers must understand this
   Marketing alliances to achieve year-round supply
Economics of GH vs FG Fresh Tomato Production
    Investment costs of around $600,000 to over $1
     million/Ha for high-tech GHs, plus variable
     production costs
    Vs FG pre-harvest costs, including overhead and
     capital costs, from around $3100/Ha in the CA
     Central Valley (UCD 2000 crop budget) to $12,500
     to 16,000/Ha. in Fla., depending on the region and
     season (U of Florida 02/03 crop budgets)
    Ave. Canadian and US GH yields approach 500
     Mt/Ha. (vs US national ave. FG yields of 32 Mt)
    Yes, GH can generate huge yields, but given the
     high costs they still generally need a price
     premium to be viable, only the most efficient GH
     producers can survive at field-equivalent fob’s
Economics of GH vs FG Fresh Tomato Production
   Clearly, with this kind of variation in yields and costs it will
    take some time to see how the industries shake out in all
    three countries.
   In the end, PER UNIT COSTS (costs per pound or kg)
    relative to per unit prices are what matter – plus quality and
    consistency, of course!
   Mexico is exploring low and medium tech as well as high
    tech options to achieve the best ROI; yields are increasing
    in all technology levels as management and technical
    knowledge improve
   Canada had an exchange rate advantage but this
    diminished, expansion has recently stopped and energy
    costs are a factor
Challenges for the N. American greenhouse
industry
   Increased NAFTA production and lower prices
      recently growth in the US after a period of stability, not just
       in Mexico
       Eurofresh has been on an aggressive expansion track
       also new (and unproven) entrants to the US industry, often backed by
        venture capital, and in the “wrong” locations – 24 acre Maine example
   Competition for the US industry during the winter from Mexico
       Some is low-tech and low-cost with variable quality
   Canada is not expanding and seems to be reducing early and
    late season production due to economics, but competition
    during the summer from Canada still a major force
   Alliances that exploit relative strengths, marketing and
    promotion are critical!
The emergence of Greenhouse (GH) Tomatoes
Changes the Dynamics of the N. American
Tomato Industry
   But remember, that’s only about half the picture
   Field-grown mature green tomatoes still own
    foodservice channels, estimated at at least half of
    tomato usage, and foodservice is growing more
    than retail
   This is why the field tomato industry has not
    declined in the face of GH expansion
   Plus, the field tomato industry has a new product -
    grape tomatoes – partly a competitive response to
    GH
    The emergence of Greenhouse (GH) Tomatoes
      Changes the Dynamics of the N. American
                  Tomato Industry
   Remember, Mexico’s main advantage continues to be winter
    production, same as for the field industry
   Given the investments that are being made in greenhouses,
    particularly in Mexico, it is important to recognize that average
    price levels are likely to come down as GH production
    continues to expand
   Higher competition and lower average prices means that only
    the most efficient are likely to survive
   The learning curve for new GH producers is getting shorter,
    they must achieve high quality and low per unit costs sooner
    rather than later
    The Emergence of Greenhouse (GH) Tomatoes
      Changes the Dynamics of the N. American
                  Tomato Industry
   As prices for GH tomatoes decline it is more difficult to get
    retailers to carry field-grown round tomatoes
   However, other field grown tomatoes like grape tomatoes
    have been growing, in both retail and foodservice channels,
    romas too (McDonald’s salads with grape tomatoes,
    Subway, fast casual restaurants, etc.)
   The GH industry largely doesn’t serve foodservice – yet this
    is the most rapidly growing market
      The Emergence of Greenhouse Tomatoes
      Changes the Dynamics of the N. American
                  Tomato Industry
   N. America is different than Europe (which is dominated by
    protected culture) since here we can produce outside year-
    round (Florida and Sinaloa in the winter)
   For dedicated high tech GH production to overtake the field
    industry there must be a technological breakthrough that
    brings production costs (per pound) closer to field levels
   Mexico not necessarily lower cost than Canada and the US;
    GH is capital- and technology-intensive and Mexico is at a
    disadvantage in this regard – Mexico’s advantage is still
    winter production
      The Emergence of Greenhouse Vegetables
       Changes the Future Dynamics of the N.
         American Fresh Vegetable Industry
   Canada’s advantage in technology and quality is
    increasingly challenged by energy costs and its inability to
    produce (economically) in the winter – it produces when
    prices are lowest
   The US industry, based in the Southwest, has the
    advantage of year-round production, high technology and
    quality
    GH will continue to grow in North America, but the share of
    total production by location is likely to change over the
    next decade
   Product innovation is a necessity
   There is a lot of room for growth in other protected culture
    produce, not only in cucumbers and peppers (e.g., lettuce,
    berries)

				
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